Has Symantec sprinkled Veritas developers with pink slips?

Revenue and profit background

Symantec is coming up to the end of its 2010 financial year. At the end of December 2009, its quarterly revenues were $1.55bn, slightly up year-on-year from $1.514bn, and its net income of a mere $300m was a good turnaround from the year-ago figure of a humunguous $6.82bn loss, driven by a huge goodwill impairment.

The nine month figures were not so good, with revenues of $4.5bn (2009: $4.7bn) and net income of $523m (2009: -$6.5bn).

In the earnings call for the third fiscal 2010 quarter, Symantec CEO Enrique Salem said: "The continued strength of our consumer business along with our sales and product initiatives in our enterprise security and compliance portfolio drove the strength of our results this quarter." No mention of storage there.

When he did mention storage he was pretty downbeat. "In our storage business, customers continued to buy licenses for only their current needs. We remain focused on leveraging partnerships to drive sales of our storage products.

"Customers now have the option to select Storage Foundation and Symantec Endpoint Protection to manage and protect their cloud based servers within Amazon’s EC2 cloud platform."

Sun under-performance

James Beer, Symantec's CFO, said: "The server market deceleration continued to put pressure on the Storage business, particularly related to new license sales on the Sun platform."

It's clear that Sun as a channel under-performed for Symantec, with the Oracle acquisition proving a big distraction no doubt.

Salem was asked if Oracle was going to go away as a Symantec partner. He did not think so: "It’s still a little bit too early to say what Oracle will ultimately do, but you’re definitely seeing the SPARC platform has been slowing for some time and I think the uncertainty of the [Sun] transaction... accelerated what was happening on the SPARC platform.

"I expect that there’ll be a continuing relationship with Oracle on the various Sun products. The maintenance streams generate very healthy and positive cash flow for us and expect that to definitely continue."

Indicating that product licence sales may not?

In response to analyst questions Salem said: "I do expect a stabilising storage business for us, given the server sales and the new releases." He expects that new deduplicating versions of BackupExec and Net Backup will help drive upgrades.

The increasing use of cloud backup, which Symantec is heavily involved in, will tend to reduce backup software licence sales.

Salem added: "We want [customers] to not think about backup and archiving separately. We want them to look at that as one integrated capability." Such product function consolidation could mean fewer development resources are needed.

But another driver towards storage developer reductions could be that Symantec gets more revenue dollars from consumer and security product developments than it does from storage products overall. So it's going to concentrate R&D on growth storage opportunities and reduce it on mature storage products.

Symantec is not talking about what R&D initiatives may or may not have been cancelled, saying: "We won't comment on rumour or speculation."

Beer pointedly said: "We will continue to focus intently on our cost structure."

Outlook

At the end of the third fiscal 2010 quarter, fourth quarter revenues were expected to be $1.510bn to $1.525bn, with the mid-point representing a two per cent year-on-year increase. That would make full year revenues around $5.97bn, which would compare, somewhat poorly, to fy2009 revenues of $6.15bn.

Cuttting costs would improve the fy2010 net income figure, and this might be another motivation behind the headcount reductions this quarter, and the movement of resources away from mature storage products and from new product developments like S4. Perhaps Symantec-Huawei could OEM the Caringo product underlying Dell's DX object storage platform?

The picture we're drawing here is one of Symantec focussing resources on the development of existing storage products with growth prospects, and taking the view that storage as a whole is not a market worth developing new products for, at least not until Symantec's overall revenues and profits improve.

Symantec isn't withdrawing from the storage market at all, but it isn't throwing R&D dollars at unproven market opportunities and, to that extent, is drawing in its horns. ®